RGF: Why the trophy projects are struggling

The plot thickens on the Regional Growth Fund.
There was widespread disappointment earlier this week when all but a handful of the bids for money to back projects in the East Midlands was rejected.
There are some sniffs emerging which suggest to me that disappointment may be something we have to get used to.
Of the successful projects, the key question is how it was that bids from business got the nod, but bids from the [government-backed] Local Enterprise Partnership didn’t. So here’s a puzzle: were the private sector bids ones which government was already familiar with because these firms had previously applied for money from other public funding streams?
In other words, was this money they were already going to get, now repackaged under another banner? To be absolutely clear, the businesses involved have done nothing wrong, but there is an interesting political question hanging over the way these decisions were arrived at by Government.
The answer isn’t straightforward. One source involved in the process has told me that the issue is that business found RGF more attractive because there was uncertainty surrounding the other funding streams, which would originally have been dealt with by the now-doomed regional development agencies.
There’s some truth in that. Money previously allocated to the RDAs has been disappearing back into a Whitehall-shaped black hole. Indeed, there’s an argument which says it has re-emerged from that black hole in the slimmed-down shape of the Regional Growth Fund. So what goes around comes around, financially at least.
The other question is whether some of these projects will actually go ahead. You’ll note that all over the country the bids that have got the nod have been accepted ‘conditionally’. This is because they still have to clear a number of legal hurdles – the businesses involved must be able to deliver their side of the financial bargain in a match-funded scheme, they’ve got to be what they say they are (in other words, not a widget company dressed up as an aerospace engineer), and, inevitably, they’ve got to conform to a European Union directive.
These are the EU regulations about government aid to business, the basic rule being that state aid should not distort the market.
So it’s not impossible that some of the projects which have won RGF backing may have to be modified in some way before they can proceed. Or that one or two of them might fall over completely.
It also seems pretty obvious that there IS a regional bias in where the RGF money goes. Most of the bids accepted so far have been tilted towards the north, in areas where the public sector is a big chunk of the economy. So the South East, South West, East and East Midlands had fewer bids accepted. I suspect it will end up being the same in round two, when most of the RGF money will be allocated.
From my inquiries, it seems pretty obvious that in the first round there was an emphasis on schemes which were going to fit the Government’s immediate growth agenda – schemes which directly created jobs rather than encouraged them in the longer-term
This is probably why some of the grander, trophy projects – projects which local politicians can’t resist, because they are seen as monuments to achievement - didn’t make it.
They may still struggle in the second round. We’ll see.

RGF: A growing controversy?

There’s a palpable sense of disappointment about the failure to secure anything other than a few crumbs for Nottinghamshire and Derbyshire businesses from the Government’s Regional Growth Fund.
This £1.4bn pot was set up by the government in the wake of its decision to get rid of regional development agencies like Emda.
While emda at one stage had an annual budget north of £150m, the amount of money Nottinghamshire and Derbyshire have managed to squeeze out of the RGF is a pitiful £1.6m. Out of 38 bids made for projects in the two counties, only one was successful.
The successful bid relates to the planned expansion of Molecular Profiles in Nottingham. Levering £8.4m of its own, the pharmaceutical research company plans to open a new building at Nottingham Science Park and create up to 65 new jobs.
This is a significant vote of confidence in an important sector for Nottingham, and Molecular Profiles CEO Nikin Patel is to be congratulated.
But what about everyone else? There are rumblings and machinations about why the 37 other local bids failed, but I suspect ours is not the only region where this soul-searching and teeth-gnashing is taking place.
Today’s announcement covers only the first of three rounds of funding bids, and has accounted for £450m of the £1.4bn available. So there is still £950m to bid for. It is the second round, which is underway now and closes shortly, which will see the lion’s share of the cash allocated.
We don’t know yet whether any of the unsuccessful bids from the first round will be considered again, but the word from Derbyshire & Nottinghamshire Chamber is that they had expected four of the 38 bids to be successful in round one – which suggests to me they will be looked at again.
I suspect the issue is that the Government's preference will be for projects which create wuick jobs, rather than trophy projects like physical infrastructure, which may only work in the long-term. It wants quick wins.
Just to complicate matters, the second round of RGF bidding coincides with the start of bidding for £19m of European Regional Development Fund cash available to the East Midlands. This is being administered by emda, though the word is that bids for this can be 'aligned' with bids for RGF money. Baffled? You're not alone...
There is a degree of paranoia in the East Midlands about its weak identity, and Business Secretary Vince Cable found himself having to reassure the region this morning that the decision was not a personal slight. That’s one to ponder – I’m not aware he has visited Nottinghamshire or Derbyshire since taking office.
There are some fairly blunt questions the government has to answer, though. It is almost certain that some of the bids will have failed precisely because the guidance from Whitehall about what they were looking for was far from clear.
That, in itself, is symptomatic of the government’s tendency to make policy on the hoof: having decided long ago that it did not want to put money into regional development agencies, it had no clear plan for what might fill the administrative void these organisations were bound to leave behind.
I blogged last week about the decision to maintain some parts of the Government Office for the East Midlands operation, and the concerns that – when put together with emda’s demise – it left the region voiceless in Whitehall.
For business, the most important part of the Government operation is the new regional representative for Mr Cable’s department, Rowena Limb. A robust conversation with her about Nottinghamshire and Derbyshire’s expectations for the next round of RGF money will be important.
So will an invitation to the Business Secretary, so that he can come and inspect for himself this unexplored corner of the Midlands. You know what we need to say when he finally does battle his way through the undergowth and find us: Dr Cable, we presume...

Building's shaky foundations

Fancy a business environment where the client keeps on coming back and asking you to ‘re-price’ your quote but never goes ahead with anything?
Or one where firms know they’ll lose money on the contract they are about to sign?
An environment, indeed, where any variation in the final settlement usually means endless arguments or bringing in the lawyers?
Welcome to the world of construction, 2011-style.
I was chatting yesterday to Robert Moyle[pictured], the chairman and chief executive of North Midland Construction, the biggest home-grown construction and civil engineering outfit in Nottinghamshire.
Moyle is a thorough-going gent who rises above mud-slinging. On a more pragmatic level, he has been running his business long enough to have seen robust commercial behaviour many times before, and the nature of North Midland’s business means it is insulated from the worst of it.
But he was concerned, nevertheless, about a commercial environment in building and construction which is having a corrosive impact on the contracting chain. And the lower down you go, the worse it gets. In building, small and medium-sized contractors have been suffering a hand-to-mouth existence.
The re-pricing issue is a problem which has been seen among those who tender for public sector contracts. The contract spec is issued, the tenders come in and then comes a request for a new tender to a different spec. Sometimes it’ll happen again. And again. In a climate of financial uncertainty, the work never goes ahead.
Private-sector building, though, has turned into a dog-eat-dog environment, one where business is so scarce that desperate firms are scrapping for contracts to the point where their tenders suggest cash flow is good news, profit is Christmas.
This is what Moyle told me yesterday: “Some of the prices I’ve seen quoted are absolutely crazy. The policy people are adopting is ‘screw the supply chain’ and the sub-contractors are suffering in a major way.”
This can manifest itself in a number of ways, most of which will come as no surprise to seasoned observers of the trade: paying late, paying less, or not paying at all. And this among businesses who can’t afford lawyers. You don’t need to be a business recovery expert to imagine the consequences.
Moyle and NMC are doing their bit. What has, historically, been a fairly paternalistic company has a high proportion of people who are directly employed. “We’ve got a good supply chain and we do what we can to keep our partners going – better payment terms, whatever it takes.”
But he may well be a lone voice, and the worry is what this is doing to an industry which is now in its fourth straight year of extremely difficult trading conditions. It hit the skids first when the housing market fell over in the immediate aftermath of the credit crunch, had to cope with a recession which took the shine off most areas of the market, and has now seen large-scale public sector work dry up.
There are no easy answers to what is, at heart, a consequence of an economy still trying to find its feet after a catastrophic financial collapse. Businesses are tentative and prefer to manage growth within existing or temporary resources, banks are reluctant to lend against anything remotely risky and they still have a boat-load of debt related to the property collapse.
For Moyle’s NMC, there are plenty of profitable markets. It doesn’t just build – it is a civil engineer, a mechanical and electrical engineer and it is locked into a series of large-scale framework contracts involving utilities, telecoms and power engineering – all sectors with strong, long-term prospects driven by the need to invest in the UK’s infrastructure.
But his business is sizeable, and the exception rather than the rule. Outside the world of domestic home improvements, the lower reaches of building are a fraught place to be right now.
The signs are that its prospects will improve decisively only when the economy locks firmly on to growth.